Your Evening Briefing: Big Loans to Insiders at Troubled US Banks

Not long before the US Federal Reserve began lifting interest rates to tamp down inflation, regional banks across the US reported a surge in lending to a group of well-connected people: insiders. Their own directors, officers and major shareholders were getting a lot of cash. The trend continued through all of last year, reaching almost $10 billion by the end of 2022, according to a Bloomberg News analysis. That was 12% more than a year earlier and represented the largest annual jump in lending to insiders, along with their related interests, in at least a decade. As it turns out, some of the biggest increases were at firms that have recently collapsed or are struggling. Familiar names among the regional banks that more than doubled credit extended to insiders last year were Silicon Valley Bank, Western Alliance Bank and First Republic Bank.

None of the lenders or their officers, directors or major shareholders has been accused of wrongdoing, and the banks have said they extended credit on similar terms to insiders as they did to other clients. Still, the recent industry turmoil has put a spotlight on stock trading and borrowing by people with power over banks. William Black, an associate professor of economics and law at the University of Missouri, observes that when a board member or executive borrows from a bank he or she oversees, “you have an inherent conflict of interest. And, worse—if things get difficult—that conflict of interest becomes extremely acute.”